Al₂o₃-20vol%Fe₇₀Co₃₀ composite powders have been prepared by high energy ball milling a mixture of Al₂O₃ powder and Fe₇₀Co₃₀ alloy powder. The Fe₇₀Co₃₀ alloy powder was also prepared by mechanical alloying of Fe and Co powders using the same process. The effects of milling duration from 8 to 48 hours on microstructure and magnetic properties of the nanostructured composite powders have been studied by means of X-ray Diffractometry (XRD), scanning electron microscopy (SEM) and vibrating sample magnetometry (VSM). It was found that the nanostructured composite powder particles with irregular shapes and Fe₇₀Co₃₀ alloy particles being embedded in them formed after 8 hours of milling. The average grain size of the Al₂O₃ matrix reduced drastically to less than 18nm after 16 hours of milling. On the other hand, the embedded alloy particles demonstrated almost unchanged average grain size in the range of 14-15nm. Magnetic properties of the powder compacts at room temperature were measured from hysteresis curves, and show strong dependence of the milling time, with the coercivity increasing from 67.1 up to 127.9kOe with increasing the milling time from 8 to 48 hours. The possible microstructural reasons for this dependence are discussed.